Short-term Employment – What Business Owners Need to Know

From a tax perspective, there are various forms of employment that must be distinguished from one another. As a general rule, tax matters are based on the assumption of “standard” employment. This refers to full-time employment as a worker. In this article, however, we would like to address a different form of employment. So-called short-term employment can be highly relevant in certain cases and involves some specific tax considerations, which we will explain below.

What is meant by short-term employment?

As the name suggests, short-term employment refers to employment that is intended for a short and limited period of time. Short-term employment is defined as employment that does not exceed a period of 3 months. This three-month period applies based on a 5-day workweek. If the work schedule is regularly set at fewer than 5 days per week, a maximum of 70 working days is assumed instead. If the employee does not exceed these 70 working days in a year, the employment is considered short-term. For the period from March 1, 2021, to October 31, 2021, the period was extended to 4 months or 102 working days. If an employee has held more than one short-term employment position in a year, these periods must be added together.

What contributions must employers pay for short-term employees?

If you, as a business owner and employer, hire an employee under a short-term employment arrangement, various contributions must be paid to the Minijob-Zentrale. We have compiled the relevant contributions for you:

• Contribution 1: For employment lasting more than 4 weeks, a contribution of 0.9% must be paid for continued wage payment in the event of illness. It is important to note that this contribution does not apply for employment lasting less than 4 weeks.
• Contribution 2: The contribution for continued pay during maternity leave is 0.19% and must be paid by the employer.
• The insolvency allowance contribution must also be paid. These contributions, amounting to 0.06%, are intended to secure employees’ wages in the event that the company becomes insolvent.

It is also important to note that, as an employer, you must pay contributions to the relevant workers’ compensation insurance. It is therefore already clear that, even in the case of short-term employment, you as an employer must deal with various taxes and contributions.

What should be considered regarding income tax?

The employee has something to look forward to in the context of short-term employment. No social security contributions are due. However, income tax must still be paid to the tax authorities for this type of employment. Income tax can be calculated using the standard income tax withholding criteria or levied as a flat rate. This flat rate is regulated in § 40a(1) of the Income Tax Act (EStG). Accordingly, income tax for short-term employment can be calculated using a flat rate without retrieving electronic income tax deduction criteria or submitting a certificate for income tax deduction. This flat rate is 25%. It should be noted, however, that this flat rate may only be applied if certain conditions are met. The following requirements must be observed:

• The daily wage may not exceed 120 euros
• The hourly wage may not exceed 15 euros
• The period of employment must not exceed 18 consecutive working days

Provided these requirements are met, the flat-rate income tax applies. It is also important to note that when applying the flat rate, the 5.5% solidarity surcharge and church tax are also calculated as flat rates. If only one requirement is not met, this does not affect the status of short-term employment. There is no limit on salary. In this case, only the “standard” income tax withholding is applied, which can potentially be disadvantageous for the employee. It is important that you, as an employer, are aware of these regulations to ensure the best possible situation for your employees.

Limitations on Short-Term Employment

Even if the time-related aspects of short-term employment are met, the work may not qualify for this status. In this context, the issue of “professional” performance is a common problem that is often overlooked by many employers and employees. This raises the question of when an activity is carried out “on a professional basis.” Generally, it is assumed that professional activity exists whenever the employment has economic significance for the employee. This assumption applies, for example, if you are receiving unemployment insurance benefits or are registered as a job seeker with the Employment Agency. On the other hand, activities that are not performed regularly and are of a more sporadic nature are generally considered non-professional. A classic example is the period between high school graduation and starting college. To ensure that a particular case actually constitutes short-term employment, a tax advisor should be consulted. If you, as an entrepreneur, are dealing with the topic of short-term employment for the first time, you should also contact a tax law expert regarding tax and general social security contributions.

Tax Consulting in Düsseldorf and Oberhausen

In tax law, there are often exceptions and special regulations that business owners tend to overlook. This has been demonstrated once again in this article. In addition, there are regular legal changes that only a qualified tax advisor can reliably keep track of. With our offices in Düsseldorf and Oberhausen, we offer you a diverse team and specialists in your field. Contact us to schedule an initial consultation.